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Munich Re pushes into disease cover

Munich Re has made its pandemic and epidemic risk business a separate profit centre under the leadership of Gunther Kraut on the expectation that demand for cover will increase.

Kraut, previously project head for the initiative, became head of epidemic risk solutions after the unit was formed earlier this month.

As well as its already-announced collaboration with the World Bank, for which Munich Re helped structure two classes of pandemic cat bond, the German carrier has written a small number of commercial policies - both standalone and integrated into wider cover.

"[Infectious disease] will always be a life insurance issue, but we do believe on the non-life side there are interesting business opportunities to push the frontier of the insurance market. You need to play it globally and we think it's an interesting sector for us to try to develop into a sustainable market segment," said Kraut.

He continued that the cover needs to be underpinned by strong data and priced separately due to the nature of the risk.

"It is too complex to just add a line to policy wording," he said. "One of the challenges is knowing what you are going to underwrite, the second is accumulation risk."

Munich Re extended its February 2016 partnership with venture capital-backed disease analytics and surveillance company Metabiota last week. The extension coincided with the San Francisco company launching a commercial industry platform for estimating epidemic preparedness and risk, including the frequency, severity, duration and cost of outbreaks.

While no details about the tie-up with Munich Re were disclosed, Kraut called the partnership a "natural transition of the previous cooperation".

The Metabiota platform combines epidemic risk analytics and a historical database of information from the last 100 years, along with disease scenarios and information from public health analysts and epidemiologists.

Kraut declined to comment on Munich Re's future equity relationship with Metabiota, which has raised about $41.3mn from investors including Pilot Growth Equity, Google Ventures, Capricorn Health & Special Opportunities, WP Global Partners, Industry Ventures and Data Collective.

The executive sees opportunities for Munich Re and its primary insurance partners to add infectious disease cover to lines including non-damage business interruption, loss of attraction and delay in start-up, and in industry sectors including tourism, healthcare, construction, transportation and resources.

"The insurance industry can make [epidemic and pandemic] risks more bearable," he said. "There are all different types of risk and we feel it needs to be played comprehensively or we can't get the risk accumulation data."

Munich Re and Swiss Re both recently advised on the World Bank's pandemic cat bond issuance, which forms part of its $500mn Pandemic Emergency Funding facility.

Kraut said Munich Re is in talks with governments and other public organisations about similar bond initiatives, but declined to elaborate.

He added that Munich Re could act as an adviser and structurer and support the placement of such cat bonds, but that most of the growth at Munich Re from infectious disease risk solutions would come from indemnifying insureds, rather than parametric protection.

"We don't restrict ourselves to any format of risk transfer. If it comes along in the shape of capital markets it is not a no-go," Kraut added.

The epidemic risk solutions unit plans to build on its staffing capacity and recently hired an epidemiologist to add medical expertise.

"It helps us in structuring solutions and we also find it incredibly helpful for building up our own pricing and data," said Kraut.

 

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